Medical Mythbusters Crack Back on Health Care Costs

Bevy of so-called solutions to curbing costs are caught in the crossfire as authors debunk such fixes as wellness plans and predictive modeling formulas.

If you think that wellness programs are an effective way to manage health care costs and improve the overall health of your employees, think again. The same goes for accountable care organizations, on-site health clinics, using claims data to predict future health problems, pharmacy benefit managers and a variety of other fashionable trends springing up in the post-health care reform world.

In the recent book, “Cracking Health Costs: How to Cut Your Company’s Costs and Provide Employees Better Care,” co-authors Tom Emerick and Al Lewis skewer sacred cows and debunk prevailing wisdom in short order. The gist of the book is summed up with this pithy advice: “Keep vendors away from your checkbook, keep consultants away from your conference room and keep providers away from your workforce.”

Emerick, chief strategy officer at Chicago-based Laurus Strategies, is the former vice president, global benefit design for retail giant Wal-Mart. He spoke with Workforce recently about the problem with the latest approaches to managing health care costs and quality.

How will the Affordable Care Act impact the way employers manage health care costs, and how effective are wellness programs to that end?

Under ACA, employers won’t have control of health care costs. I’m troubled that as more evidence piles up that the wellness approach isn’t working, more companies are doubling down on it. Employers will have to conform to a government-issued plan design.

The time that employers will realize that wellness programs aren’t effective is when they are being mandated to provide it. You will have to report if it’s improving the health of the population you are targeting, which creates another level of bureaucracy. I imagine that a sanction for not meeting certain health goals won’t be far behind.

On the positive side, it will force employers to see if they are having an impact.

What is the problem with wellness programs?

The three factors that impact an employee’s health are age — no wellness program can change that — genetics, which you also can’t change, and how well you like your job. In Europe, study after study shows that the single risk of mortal hazard for working-age people is whether they have a job they can tolerate. If you’re in a job that you hate it causes metabolic syndrome, or high blood pressure, it causes alcoholism, it causes obesity.

If you want to offer a wellness program to show employees that you care and it’s not intrusive, go ahead. But please don’t do it and think you’re going to save money.

If wellness programs are so ineffective, why have so many employers embraced them?

Wellness sounds like a great solution. It also sounds noble. Who doesn’t want to think that they can improve the health of their workforce? Also, HR departments are under a lot of pressure to control costs, and this is a relatively easy way to show that you are trying to do that. Wellness vendors send reports on how they are saving you money. They will say things like, “You’ve decreased the risk of heart attack by 150 percent.” But if you decrease the risk of heart attacks 150 percent, that means someone will have to rise from the grave. If you do the math you will see that you’re getting impossible numbers. But offering a wellness program is more attractive than raising deductibles and changing plan design.

More and more companies seem to be offering incentives to get employees to adopt healthier lifestyles, yet your book urges employers to spend their money creating a culture of wellness instead. Can you explain?

Incentives have a long history of inducing things like smoker’s amnesia. There were a huge number of these incentive programs around smoking that started back in the latter 1970s and early ’80s and a lot of companies canned them. People wouldn’t tell the truth. Joe would come in and say he saw Bob in the break room smoking and Bob is getting the $50 incentive anyway. What are you going to do, fire him? That’s why a lot of programs from that time got canceled. It’s troubling because those kinds of programs have come back with a vengeance. Companies have lost tribal knowledge of what happened the first time they tried incentives.

What does work is doing things like putting healthy food choices on the company menu and creating an environment of wellness by building walking trails. Another way to show that you care about your employees is making sure the restrooms are spic and span. You’re better off reallocating those incentive dollars toward creating a wellness culture.

The concept of using claims data to predict which employees are likely to face medical problems has gained a lot of traction, yet you call it health care’s biggest fraud after wellness programs. Why doesn’t it work?

There are people who have strokes and heart attacks all the time with no history of it, but it was genetic. You can’t capture that in claims data. What you have in claims data is a whole lot of medical bills and not much else. If you’re trying to take what people say in their health risk assessments and dovetail it in, oftentimes you’re not asking the right questions. I don’t want to participate in a health questionnaire that asks, “Did your mother, father, brother, uncle have a heart attack?” That’s a bit intrusive in my opinion. When employers ask those kinds of intrusive questions they may or may not get a truthful answer.

You write that most employers will never know how much value, if any, pharmacy benefit managers provide because PBM contracts are impossible to understand. So how can employers cut through the smoke and mirrors?

It wasn’t designed this way by accident. I’ll tell you what’s wrong with PBMs. I worked with a company that had a brand-name drug on their preferred list. It was there because it came with a $4 rebate. The employer got $2 and the PBM got $2. But there were drugs with no rebate available that cost less than one-fifth of what that drug costs and they weren’t on the preferred list. That $2 rebate ended up costing the employer about $80 on each prescription. Also, the literature said that the rebated drug was not as effective as the cheaper drug. Employers need to question the PBMs about what they’re doing and why they’re doing it that way. The reason that some drugs get higher rebates is because they are not as effective and they need to offer a rebate to get employers to buy them.

I ask benefits managers why they don’t address these issues more aggressively and they say that they’re too busy managing the medical plan and no one is complaining about the pharmacy plan. The reason no one is complaining is because things run pretty smoothly with a PBM and they let a huge number of drugs into the formulary.

Employers can save a lot of money by being more restrictive about the drugs they allow on that preferred list, but HR people see that as disruptive and as something that could generate complaints.

Popular wisdom says that the best way for employers to control health care spending is to focus on the 10 percent of the people who account for 80 percent of their health care dollars, but you debunk this theory. What does work?

The 10/80 fallacy is that the 10 percent of people with chronic conditions spend 80 percent of plan dollars. That is a huge fallacy. What's true is that 6 percent of the people, who I call outliers, in the middle of an acute health care episode, e.g., cancer, heart or valve surgery, spine surgery, etc., spend 80 percent of plan dollars. Most of what they have is not preventable and many have chronic but coincidental conditions. An example is someone with liver cancer who also has asthma. Many consultants are simply misreading data by looking at averages and not distributions, or erroneously falling into a post-hoc fallacy. It's that simple.

Companies like Wal-Mart, Lowe’s and Pepsi are using the clinics and hospitals that are the most effective in treating these outliers. There are extreme differences in how hospitals manage these illnesses. About 10 to 20 percent of that population is misdiagnosed. That kind of thing is epidemic today. You need to spend the money to get them the correct diagnosis.